Research Rap: Defining the ROI of Product Portfolio Management

A quick peek into some research on
… identifying the financial returns
available
from
implementing a product portfolio management (PPM) solution.
This research is from my company Tech-Clarity again, and is a
brief view into how companies can financially justify their
investment in PPM initiatives.

Why the Research?
I have run into quite a few companies that recognize that their
product development processes are broken. They are falling behind
in getting the right products to market, and don’t have a
strong, objective process to manage their processes and
decision-making. What these companies want to do
is: 

• Identify opportunities for new products
• Select the optimal mix of products based on
  the seemingly infinite number of balancing acts and trade-offs
  required (risk vs. reward, extensions vs. new products or
  platforms, market trade-offs, etc.) 
• Select the most valuable products despite the
  high uncertainty in early product development 
• Allocate resources to new product development
  projects in a realistic way 
• Manage them through the product development
  process, typically using a gated product development
  methodology to (hopefully) weed out or correct struggling projects
  and ensure high potential projects are completed quickly and
  efficiently

What does the Research Say?
In short, it defines where to “R” in the “ROI” will come from. I
don’t try to map out the full investment required, maybe that is a
project for another time. Or maybe somebody knows of some research
we can share here? What this research does is identify potential
returns from simultaneously growing top line revenue and
reducing cost by: 

• Selecting better portfolio mix resulting in
  more competitive products in the market, raising market share and
  resulting revenue
• Accelerating time to market means a larger
  percentage of revenue from new products, where new products capture
  premium prices and drive higher margins
• Avoiding expense of initiating non-strategic
  projects
• Avoiding cost through early termination or correction
  of low value or floundering projects
• Reducing labor cost by more effective resource
  planning and improved staff utilization, reducing project clutter
  and resource “thrashing”
• Improving efficiency of the strategic planning
  process 

In addition, the research follows up with a series of
soft benefits that are difficult to place a direct financial value
on, but are very strategic to profitability. The research
also includes an example analysis of returns for
a fictitious company, with as realistic of a set of
numbers as I could provide that will work across industries and
geographies. It should provide a framework for most companies to
work from.

So that was a quick peek into some recent research on developing a
realistic (and conservative) model for the returns available from a
PPM solution, I hope you found it interesting. Does the research
reflect reality? Do you see it differently? Do you have some more
examples or a model that includes the investment required? Let us
know what it looks like from your perspective.